Comcast Craves Content

Comcast Corp.'s support of Sony Corp.'s $5 billion offer for MGMconfirms the cable giant's desire for content to supply its video-on-demand(VOD) service, which it sees as the strongest weapon to stave off attacks fromsatellite rivals.

For the nation's largest cable operator, the deal allows unprecedentedaccess to a trove of screen hits, such as the James Bond series, which Comcastplans to offer on its VOD service at no additional fee. For Sony, a deal withthe 21-million-subscriber Comcast gives the Japanese company's executivesconfidence to top the bid by Time Warner, whose executives thought they had theauction locked up.

Sony has been wary of the MGM deal since the beginning, teaming with agroup or financial players rather than bidding on its own. (Comcast has theoption to acquire 20% of the venture's equity for $300 million, if Comcast CEOBrian Roberts decides later that he wants in.)

During Comcast's campaign to take over The Walt Disney Co. last spring,skeptics expressed confusion over why the cable operator wanted it. In themiddle of the battle, a senior Comcast executive confided that a major motivewas feeding cable's nascent VOD operations. Roberts is convinced that VOD iscable's most potent weapon against satellite companies. Without controlling amajor programmer, the executive asks, "Where are we going to get content forVOD?"

The deal is Comcast's latest move to bolster its programming portfolioin recent months, including the takeover of Tech TV, taking control of theInternational Channel and increasing its stake in E! Entertainment Television.Assuming that Comcast actually buys into the Sony MGM venture, the tab for allthese ventures would run just $750 million. "For not a huge amount of money,it's a nice laundry list," Alchin says.

For Sony and its financial group, TV is a small part of the deal. Thegroup is far more interested in the $1.1 billion a year MGM has been generatingby selling its movies on DVD. (TV revenues are much smaller.) The Comcast dealwon't bring in big bucks, with one Wall Street executive saying Sony will getjust $20 million per year. But Comcast has also agreed to partner with Sony onsomething the studio has long desired, but never been willing to pay up for: ageneral entertainment cable network anchored by its movie library.

The famed library of Metro-Goldwyn-Mayer would certainly upgradeComcast's current free-VOD slate, which is dominated by programs offbasic-cable networks plus Japanese anime andreplays of broadcast-network news shows (in a couple of markets). Comcast willget up to 400 movies per year to cycle through its VOD menu. The free VODmovies will generally be at least five years old.

Comcast executives believe that, if they can addict their high-endsubscribers to VOD, they'll never defect to DBS. DirecTV and EchoStar don'thave anything close to the capacity to offer the hundreds of programs on-demandthat cable operators can.

What Comcast didn't get was better access to fresh product. For years,cable operators had sought to sell a movie on pay-per-view on the same"day-and-date" that the title hits the shelves of Blockbuster Video orWal-Mart. But studios are too skittish about cannibalizing the home-video goldmine and delayed the PPV and VOD window by 45-60 days.

Under the Sony deal, Comcast will get five newer titles in the primaryhome-video window as a "test". But generally, the most recent theatricalproducts such as Sony's Spiderman 2 willstill be sold for $4-$5 per viewing.

Comcast isn't worried that Sony won't move faster. "To me, the broaderVOD deal is more important than day-and-date," says one Comcast executive. "Ifwe get day-and-date, satellite will get day-and-date. But this way, satellitecan't offer what we can offer."

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